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December 19, 2013

Massachusetts to Require Background Checks for Advisors

Come January, the new rule will apply ‘irrespective’ of whether a rep is associated with state or federally registered advisors

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A fiduciary obligation goes beyond the suitability standard typically owed by registered representatives of broker-dealer firms to clients. The relationship is built on the premise that the advisor will always do the right thing for the person or entity receiving advice.

Proxy Voting
RIAs are not required to vote proxies on behalf of their clients. However, when an RIA does assume responsibility for voting proxies, the firm’s policies and procedures should help to ensure that votes are cast in the best interest of clients.

Starting in January, the Massachusetts Securities Division will require that any person seeking to be registered as an investment advisor in the state must first consent to a background check via the Massachusetts Criminal Offender Record Information (CORI) system.

The Division announced Thursday that the requirement applies to all investment advisor representatives applying for registration in Massachusetts, “irrespective of whether they are associated with state or federally registered investment advisors.” However, the rule does not apply to those making annual renewal applications.

The securities division sought comments in March on whether to require criminal background checks for advisors. Comments were taken until May 15.

The request for comment, issued by Willam Galvin, secretary of the commonwealth of Massachusetts, said the state’s securities division “believes that it is in the public interest and for the protection of investors to conduct criminal background checks of those individuals seeking IAR registration in order to ensure that the applicant is not subject to a statutory disqualification and has truthfully and accurately disclosed any criminal background required on Form U-4.”

Galvin noted at the time that the division’s Registrations, Inspections, Compliance and Examinations Section was recently granted access to utilize the Massachusetts iCORI system, an electronic criminal history database, in order to conduct these reviews.